IMF Survey: World Economic Chiefs Reinforce Cooperation to Boost Recovery
April 25, 2010
- IMF policy steering committee, G-20 ministers hold joint sessions
- Groundwork laid on number of key initiatives to bear fruit later
- IMF accelerates discussions with Greece on financing package
World economic and financial leaders, gathered in Washington for the IMF-World Bank Spring Meetings, made progress on a variety of fronts to help reinforce the global economic recovery and to reach agreement on a series of efforts to create a more stable international economic and financial system.
IMF SPRING MEETINGS
Separately, the IMF said it has accelerated discussions with Greek authorities on a financing package. “I am impressed with the Greek authorities' determination to take the actions necessary to put their economy back on track,” IMF Managing Director Dominique Strauss-Kahn said in a statement on April 25 after meeting with Greek Finance Minister George Papaconstantinou.
“The IMF, the European partners, and everyone involved in the financing effort recognizes the need for speed. I am confident that we will conclude discussions in time to meet Greece’s needs,” he added.
Building on cooperative approach
Economic and financial leaders of the International Monetary Fund and the Group of Twenty (G-20) industrialized and emerging market economies agreed to build on the cooperative, multilateral approach that helped them combat the global crisis and considered a number of initiatives, including possible taxation of the financial sector and mutual consultations between major economies about their policies.
“We have surveyed many issues. First and foremost, the global economy,” said Youssef Boutros-Ghali, chairman of the International Monetary and Financial Committee (IMFC) of the Fund. “The global economy seems to be recovering. The worst is definitely behind us. But, we are not out of the woods yet. We see a strengthening of economic recovery, but we also see an unevenness in this recovery, unevenness within countries, and unevenness between countries.”
Overall, the discussions were extremely constructive, Boutros-Ghali, the Finance Minister of Egypt, said. “We have initiated for the first time joint sessions with the G-20 and we are discovering both of us the synergy that can come from common work between the two groups, the IMFC and the G-20.” Ministers from the Group of 24 developing countries also held discussions and issued a communiqué at a press conference.
The four days of talks, involving some 2,000 delegates from 186 countries, went ahead despite the disruptions to flights from Europe caused by the eruption of an Icelandic volcano.
The key theme of the meetings was the need to secure the economic recovery. In its latest World Economic Outlook (WEO), the IMF said the world economy was recovering from the global crisis better than expected, but saw activity reviving at different speeds in different parts of the world.
IMF Managing Director Strauss-Kahn said the world had entered a fourth phase of the crisis—the rebuilding phase. The world had gone through three earlier phases: 1. Initial panic; 2. Coordinated international response; and, 3. Relief when measures began to work.
But he said the world remains a dangerous place. Unemployment is high, activity is still being propped up by accommodative policies, the financial sector still needs to be repaired, budgets are looking dicey in some countries, and the return of large-scale capital inflows challenges emerging markets.
Laying the groundwork
IMF First Deputy Managing Director John Lipsky said the meetings had laid the groundwork for progress on a variety of initiatives later in the year. They comprised
• Mutual assessment. The G-20 Framework for Strong, Sustainable and Balanced Growth is a compact that commits the G-20 to work together, with the help of the IMF, to evaluate whether their policies are collectively consistent with sustainable and balanced global growth. Lipsky said the G-20 initiated this mutual assessment peer review process at the Washington meetings and had made good progress, with the IMF providing initial analysis.
• Financial sector reform. This was high on the agenda for the IMFC, which called for a “collaborative and consistent approach for a stable global financial system.” The Fund is pressing for agreement by the end of 2010 on rules pertaining to capital and liquidity, a minimum toolkit for addressing systemic risk, and a framework for working out cross-border resolution issues. The IMF also presented a draft paper on options for financial sector taxation, to be considered at a G-20 summit in June.
• IMF mandate. Following the crisis, the IMF is reviewing its mandate to better align it with what the multilateral lender does in practice. The IMFC said the crisis had underlined the importance of strengthening the analysis of systemic risks and linkages, of avoiding moral hazard, and of responding to such crises with sufficient resources, and well-tailored facilities with adequate safeguards. The committee called for full and open debate about the future role of the Fund.
• IMF quotas and governance reform. Policymakers committed to completing governance and quota reform at the IMF before January 2011. The aim is to reflect the shift in world economic power toward dynamic emerging market economies through a redistribution for quotas—which reflect the contribution of each member to the Fund and the relatively voting power.
• Support for low-income countries. Things remain difficult for low-income countries and the world’s poorest. While Africa’s growth is expected to bounce back, Boutros-Ghali pointed out that 2010 will see 65 million people added to the lines of poverty, 18 million of them in Africa. “All the membership agreed that this was inadmissible and that we should push for additional resources, additional support, within the IMF, and within other international organizations, so that this is addressed as early and as quickly as possible,” he told a press conference. The IMFC thanked countries that have committed additional loan and subsidy resources for concessional lending, and called on other donors to contribute. The Development Committee of the World Bank and IMF said the crisis had interrupted progress in reducing poverty and the impact will be long-lasting. “With only five years to meet the Millennium Development Goals, we must intensify efforts to reach the poor wherever they are,” ministers declared.